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Comment by JumpCrisscross | Hacker News Reader

Cryptocurrencies are in an interesting middle ground, from a regulator’s political perspective. They’re complicated and stand to harm mostly those who inflicted it on themselves. For an ambitious regulator looking forward to an administration’s nominating committee, Senate confirmation hearing or even campaign trail, that makes it unattractive relative to e.g. insider-trading hedge fund managers or Medicare fraudsters. (To the contrast, we’re approaching the critical scam mass in Asia.)

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> They’re complicated and stand to harm mostly those who inflicted it on themselves

They're about as "inflicted on yourself" as most fraud is. You could say that a grandma getting scammed by a person pretending to be a government official[0] also brought it on herself, and so did the guy scammed by an insurance MLM. The truth is, there's enough of buzz around cryptocurrencies that it starts to impact regular citizens[1]. It's becoming a public issue, and so it's a perfect moment for the government to step in and start dealing with the fraudlent part of the cryptocurrency ecosystem.

[0] - Recent subject of fraud prevention campaigns by the police in Poland, not just a stereotype.

[1] - Hell, I heard a story about cryptoexchanges in local radio news this very morning.

This is becoming an issue of public financial safety:

"The other day my barber asked me whether he should put all his money in Bitcoin." - Paul Krugman

https://www.nytimes.com/2018/01/29/opinion/bitcoin-bubble-fr...

> It's becoming a public issue

Pardon me, I didn't mean to say it isn't something regulators should go after. I was merely commenting on their incentives.

If you're an ambitious regulator, an easy-to-explain high-profile bust is worth its career weight in gold. "I got Martin Shkreli convicted of securities fraud" is potent and messageable. "This cryptocurrency scheme...what's are cryptocurrencies?..anyway, this scheme in Hong Kong sold other cryptocurrencies called Tethers in exchange for Bitcoin...no, we're still fighting for extradition..."

That is messy. Maybe you get a promotion. It could also backfire if it's perceived as preferential treatment of Silicon Valley.

> This cryptocurrency scheme...what's are cryptocurrencies?

"Remember that fake computer money used to buy hard drugs and order assasinations on the Dark Web? Those ones. Also, they're currently being used to scam people by megadollars. And I'm about to bust some of them."

Maybe not Shkreli-level in media applause, but close enough, I think.

Probably bigger tbh. Suspect the guys behind Tether have printed themselves a lot more money than Shkreli was ever worth, and people will have vague recollections of the existence of a cryptocurrency Wild West long after they've forgotten why that securities fraudster who also dabbled in pharmeceuticals companies was so unpopular.

I’m. It sure that I agree. There has been so much blatant scamming and corruption in the cryptouspace that it’s almost certainly in need of some regulatory fire and brimstone. It’s also, however self-inflicted, exploded into the popular consciousness. The SEC would probably also prefer, as prosecutors do, nearly certain victory. The nature of blockchains makes them exceptionally strong evidence, and paper trails.

In particular the state can’t really afford to let money laundering on this scale continue.

> it’s almost certainly in need of some regulatory fire and brimstone

Sure, but it pains me to see American securities regulators’ already-strapped budgets going after, almost alone, an international problem. Regulatory focus has an opportunity cost. More attention to cryptocurrencies means less to everything else.

> the state can’t really afford to let money laundering on this scale continue

The Treasury and Secret Service are the principal enforcers of U.S. anti-money laundering law. This action is being brought by the CFTC.

In any case, there is lower hanging fruit (in terms of ease of prosecuting, volume of funds laundered, and politics vulnerability) than cryptocurrency-facilitated money laundering which, by its nature, leaves a convenient and immutable public record in fact wake.

> Sure, but it pains me to see American securities regulators’ already-strapped budgets going after, almost alone, an international problem. Regulatory focus has an opportunity cost. More attention to cryptocurrencies means less to everything else.

True, but cryptocurrencies - especially now, with ICOs - move such absurd amount of money that they do become a big problem. And it probably won't take much effort from SEC to make the whole charade collapse everywhere, so it might be a pretty good investment of time after all.

Why unattractive - all the the SEC oversight actions we've seen under the current adminstration/Congress indicates it's going to be all in on Wall Street deregulation - it's a lot of Goldman Sachs' former employees at the sprinkled throughout the administration (this part is probably not a lot different from what Clinton would have done, tbh). The cryptocurrency surge is mostly out of Wall Street by design which makes it a relatively harmless enforcement action (to entrenched interests on Wall Street).

Ponzi schemes also only harm those who inflict it on themselves.

Unless they get so big they affect the economy as a whole.

https://en.wikipedia.org/wiki/Albanian_Civil_War

> The Albanian Civil War, also known as the Albanian rebellion, Albanian unrest or the Pyramid crisis, was a period of civil disorder in Albania in 1997, sparked by Ponzi scheme failures. The government was toppled and more than 2,000 people were killed. It is considered to be either a rebellion, a civil war, or a rebellion that escalated into a civil war.

Until now, Bitcoin is not considered a systemic risk[1], which simply means that /when/ it will crash it won't drag the whole world economy down with it.

Lots of people will get burned pretty badly though. Like the saying goes, freezing feet and burning head makes for a good average temperature.

[1] https://www.economist.com/news/leaders/21732526-there-invest...

> Ponzi schemes also only harm those who inflict it on themselves

Ponzi schemers lie to their investors. (Madoff purported to run a reputable shop.) It’s harder to argue, to the broader public, that someone buying Tether with Bitcoin could reasonably think they made a legitimate investment.

A lot of exchanges don't give you the choice and just give you Tether when you sell Bitcoin. What are the odds that a lot of people don't know the difference between USDT and USD?

When I first started some time last year, I wasn't sure what "USDT" was but I didn't care terribly because a) it's easier to calculate things mentally versus the BTC worth of a coin which looks like .000003456 which is a nightmare to picture; b) I trusted the exchange.

So yeah, I'd absolutely smack the exchanges for passively perpetuating a fraud which has been talked about for months now.

> Ponzi schemers lie to their investors

If USDT is not 1:1 backed by USD, so does Tether. If Tether and Bitfinex are different faces of the same group, and Bitfinex treats USDT and USD equivalently on their exchange relying on Tether’s backing claim as justification, so does Bitfinex.

>Ponzi schemers lie to their investors.

is that all of them, or most of them? because there are ponzi schemes that openly state what they are.

There are plenty of examples of cryptocurrency related scams that present themselves as a legitimate investment.

Aside from that, I think an argument could be made that bitcoin itself is a form of pyramid scheme. I'm not sure if I 100% agree with that, but I understand the line of reasoning.

I'm glad regulators are looking into this and asking these questions.

Think it's probably easier to argue to the public that this thing which the company said was a convenient digital way of converting other digital assets to dollars but lied about the dollars suckered innocent people than most bog-standard "we've found a totally legitimate way of earning 100% weekly returns but we're really struggling to get the finance for it so we'll even pay your referral bonuses on top for promoting it" Ponzi scams.

No. Go do some reading on all the charities and hospitals that were hit very hard by the Madoff ponzi scheme imploding. They had to give up millions that their invested-with-Madoff-and-Madoff-feeder-funds rich donors had promised them, donations they had been relying on and been planning their budgets around. Worse still, in a ponzi scheme there can be clawbacks of money you “made” before and already spent, not just loss of the existing money that goes poof.

EDIT: Or, if you’re a sports fan, consider the impact on the New York Mets and their budget over the last decade.

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